I absolutely loved this book. John Kay deciphered the complicated world of finance and presented in an intriguing and logical way. I was most impressed by how he explained the role of CDS (credit default swaps), moral hazard, and CDO (collateralized debt obligation) during the financial crisis in 2008.
Whether you are new to capital markets or an experienced veteran, you will find this book insightful and enlightening.
Capital markets are composed of the borrower, investor and the intermediary (agents such as banks and dealers). In an ideal world filled with good banks and effective asset managers, there should be market efficiency, which results in a win-win for everyone involved.
Unfortunately, good banks and good asset managers are not prevalent and since there is a “trust issue,” we ask for transparency and for more regulation to help restore trust. The push for regulation, however, is becoming more of a core problem than a solution.
History serves as a reminder of what to do and what not to do. Yet in the evolution of financial markets, it appears that many have missed the point. Kay’s ability to apply his practical and academic experience to this topic helps the reader understand what’s driving all these so-called strategies by asset managers and banks.
As the author points out, when your trading strategy is designed to be self-serving rather than to benefit the business or the households, it leads to ruin.
This book will not tell you how to make money in capital markets or how to pick a good asset manager, but it does help you to differentiate the good from the bad. It’s a reminder of how fragile our financial system is and how essential it is to bring back the ethical standards capital markets were originally based on.
Finance has never been more interesting – kudos to the author for “bringing sexy back” to finance.